Get Sued! Article by financial expert and author Lance Wallach

Get Sued! Article by financial expert and author Lance Wallach


www.lancewallach.com

Proceedings, which are admitted, Respondent consents to the entry of this Order Instituting  Administrative and Cease-and-Desist Proceedings Pursuant to Sections 9(b) and 9(f) of the  Investment Company Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order ("Order"), as set forth below.

III.

On the basis of this Order and Respondent's Offer, the Commission finds 1 that:

Summary

From September 2007 to March 2009, MassMutual offered a Guaranteed Minimum Income Benefit (GMIB) rider—GMIB 5—as an optional feature to the MassMutual Transitions Select and MassMutual Evolution variable annuity products. MassMutual also offered GMIB 6 from September 2007 to December 2008. For an additional fee, the GMIB rider benefit sets a minimum floor for a future amount that can be applied to an annuity option (the "GMIB value").

The GMIB value increases by a compound annual interest rate of 5% for GMIB 5 or 6% for GMIB 6, and allows contract owners to make withdrawals any time during the accumulation period. These riders included a maximum GMIB value or "cap" that limited the amount to which the GMIB value could increase. During the time period that MassMutual offered the GMIB 5 and GMIB 6 riders for sale, its prospectuses and sales literature did not sufficiently explain that once the GMIB value reached the cap, withdrawals would cause pro-rata reductions in the GMIB value in many instances. MassMutual's failure, in its disclosures, to sufficiently explain the effect of the cap on withdrawals confused sales agents and others. For example, some believed that a customer could allow the GMIB value to accumulate until it reached the cap and then begin taking withdrawals—a strategy that in fact, under certain circumstances, would have resulted in a rapid decline in the amount available to be annuitized. By taking post-cap withdrawals, contract owners could, under certain circumstances, be left with no future income stream. MassMutual was aware that some sales agents and others did not understand the effect of post-cap withdrawals, which should have led it to improve its disclosures more quickly than it did. Beginning May 1, 2009, MassMutual revised its prospectuses to better explain the consequences of taking withdrawals after the GMIB value reaches the cap.2

 Given the operation of these features, the earliest contract owners could have reached the cap is the year 2022. Recently, MassMutual has undertaken the remedial step of removing the cap entirely from these riders.